Rumours of my death...have been greatly exaggerated

Despite rumblings in the financial services industry to the contrary, the death of the ubiquitous Automated Teller Machine (ATM) is anything but true, and, moreover, according to a new report out by a London based banking research firm, its numbers will continue to proliferate worldwide.

Despite rumblings in the financial services industry to the contrary, the death of the ubiquitous Automated Teller Machine (ATM) is anything but true, and, moreover, according to a new report out by a London based banking research firm, its numbers will continue to proliferate worldwide.

The crowd gathered outside Barclays Bank in Enfield, a suburb of north London, England, at the official opening ceremony of the world's first cash dispenser on the 27th June 1967. The machine was manufactured by De La Rue, accepted a voucher with perforated holes, and dispensed a fixed amount of £10.

Despite rumblings in the financial services industry to the contrary, the death of the ubiquitous Automated Teller Machine (ATM) is nothing but rumour, and, moreover, according to a new report out by a London based banking research firm, its numbers will continue to proliferate worldwide.

The first cash dispensers were installed over 30 years ago and became a worldwide phenomenon in the late 1980s and 1990s. Today, there are over 800,000 machines in operation. Speaking at the recent eBank 2000 conference in Dubai, Retail Banking Research's (RBR) senior research consultant Mark Glover predicted that this number would grow to well over 1 million by the year 2004.

“Despite the proliferation of alternatives to cash payment, particularly cards, ATMs are set to grow in number over the next five years to well over one million machines,” Glover told Financial Services Technology. “In some countries you can expect this number to increase five fold or more. For manufacturers, this is a mature and increasingly competitive market which means that there will be increasing pressure on margins.”

What is remarkable is that a technology which has been with us for over 30 years, and which has been through relatively minimal technical changes is still the most familiar face of electronic banking. Barclays Bank in the UK claims to have installed the first cash dispenser in 1967- a machine which looked and operated very differently from today's devices.

There were no magnetic cards; customers were issued with paper vouchers which were fed into the machine which retained the voucher, and dispensed a single £10 note. Other banks used machines which accepted thin plastic cards which were returned to the customer through the post after processing so that they could be used again.

When the machines worked, which was not very often, they operated 24 hours a day, 7 days a week and gave out cash in a matter of seconds. These first generation machines were also offline, in that they were not connected to the banks' internal systems, and thus could not check whether the voucher or card had been reported as lost or stolen. The next development came in 1972, when Lloyds bank installed its first “cashpoint” machines, which had been developed by IBM. These used plastic cards with a magnetic stripe on the back which identified the customer's account. Consequently the bank did not need to process the card physically and it could be returned to the customer at the end of the transaction. Machines were connected directly to the bank's central computers and were not capable of working when not connected.

In Japan, Fujitsu was also developing an online cash dispenser which came into service in the early 1970s, also based on a magnetic stripe. These second generation machines proved to be cheaper to operate and more reliable that the old offline machines. By the mid-70s, virtually all new installations were of the new type and by the end of the decade almost all of the first generation machines had been replaced.

Things have begun to change dramatically in the last couple of years, with the largely US-based trend of banks adding more technical capabilities to their ATMs, such as showing movie trailers and Web browsing, something which Glover expects to make an impact. He pointed out that, in future, both high-end and cheaper ATMs were likely to include chip card readers with full graphics colour screens, note recycling capabilities and, eventually, some means of biometric customer identification.

“Cash withdrawal still remains the main reason for ATM use, accounting for 70% of all transactions,” said Glover. “However there is a wide range of other services which banks in different countries have tried. These range from providing copies of ID certificates to buying tickets for sporting events. The Middle East can learn a great deal from looking at the experience of different countries that have already successfully implemented such services.”

So what has any negativity about ATMs’ future been based on? Criticism has stemmed from the feeling amongst some bankers that ATMs, while providing a vital service, have been considered to be expensive to maintain, particularly in terms of upgrading capabilities and replacement. Although the cost of the machines has fallen in real terms, the devices remain complex devices and remain complex electromechanical devices and until recently typically cost $15,000 to $20,000.

The most recent development has been the introduction of low price, low function, low capacity cash dispensers. These machines priced at half the cost (between $5000 and $10,000) have led to a surge of installations in the United States in the mid-90s.

“Today's machines represent the progressive culmination of over thirty years' development,” said Glover. “The customer display has evolved from none at all, through a single LCD line, to monochrome monitors and to full colour, full graphics screens. Multiple currencies and denominations can now be dispensed. Transaction speeds have been progressively improved as the note handling capabilities were refined and simplified, and as the PC became the core of the ATMs’ core intelligence.”

National Bank of Dubai in the UAE has indeed looked to complement its installed ATM base with the recent development of its Customer Interactive Terminal (CIT), a stand-alone kiosk which allows its customers to directly access its Internet banking service.

“Our aim in developing CITs was to provide our customers and the general public with an easy and convenient way of banking with NBD whilst also having access to all the information they require on the bank's products and services,” said Abdulfattah Sharaf, NBD’s business development manager. “Electronic banking can be defined in many ways, but for us, we define this as ‘the delivery of banking and financial services where the customer has no need for physical presence,’”

Through the CIT, users can get detailed information on the bank's products and services, apply for an NBD bank account or credit card, apply for National Bank online, access foreign exchange rates or daily updated gold and silver prices and view and access Internet banking services. The bank’s personal customers who are registered users of National Bank online can; view the balance of their NBD account, view their bank account and credit card statements, transfer funds to their own accounts and to third party accounts, make one-off bill payments to Etisalat, Dewa, and other NBD credit cards and setup standing orders. Sharaf, contrary to Glover, believes that eventually ATMs will be phased out.

“I believe ATMs and traditional branches will be phased out one day. Rapid technological change is affecting the way all organisations do business. Some 10 to 20 years back, no one could have thought that the Internet could make such an impact or even exist,” he said. “But it has. No one can ever rule out further developments.”

Despite the growth in popularity of new delivery channels such as the Internet, however, the annual investment by banks in ATMs is still much greater. What’s more, the projections mentioned by Glover are backed up by the fact that installations of ATMs have been increasing worldwide ever since they came into existence.

According to RBR research, since 1967, ATMs have increased year on year to number approximately 800,000 today. Of this number, the Middle East and Africa region accounts for only 15,000 machines, which is significantly less than places like Europe and the United States. The Asia-Pacific region accounted for 253,000 machines, 32% of the world total; North America was the next largest region with 221,000; Western Europe has 219,000 and finally Eastern Europe accounts for 12,000. The relatively smooth growth in world figures, however, hides strong regional variations. While the installed base of ATMs is forecast to grow in all regions of the world, the rates of growth will differ considerably. The regional markets of Latin America and the Middle East and Africa will each grow by roughly 60%, while it is estimated Eastern Europe will grow by more than 130% between now and 2004.

“There are many forces driving the continued investment in and installation of ATMs,” said Glover. “These include demand from customers; competition between operators; replacement of branch staff and staffed branches; installation of new technology and growth in branch networks.”

Factors which might limit growth were related to cost, with ATM’s high operational and purchase costs the most prominent reasons. The high costs of site rental and installing security were also mentioned in RBR’s report as concerns. The substitution of cash, with a resulting fall in cash use and therefore less need for ATMs, was also quite frequently suggested as a possible inhibitor. Both conventional cards and “electronic cash” were both mentioned in this context.

“ATMs aren’t being used to their full potential used to their full potential,” said Glover. “Things like finger printing technology—biometrics— is a capability that a great many banks are looking at adding, but, like many other technologies available, it is expensive.”

One thing is certain: the ATM isn’t about to go anywhere fast, and many other factors should be considered by banks before they decide that the medium is about to die. Glover points out that merely viewing the ATM as a service which costs money to maintain, it should be seen as a revenue generator. Bank branches worldwide are closing all the time, and therefore spending money to increase the capabilities of ATMs looks to be a sensible option. One issue that cannot be ignored in this respect is the huge amount of money organisations in the United States in particular are paying out to have advertisements appear on ATM screens. What better place to inspire a person to spend their hard earned cash?